Habitat for Humanity International isn’t building as much new habitat as it used to.

Facing rising land prices, the 38-year-old charity, which provides homes for low-income families, is placing more emphasis on buying and renovating existing homes in the U.S.

The number of homes Habitat renovated in the U.S. more than doubled to 1,435 in its 2014 fiscal year that ended June 30 from 2008, according to the group. New construction, meanwhile, declined 31%, to 3,323, in 2014 from 2008.

The main culprit: land prices, which have increased at double-digit percentages since 2012, making building more expensive. A typical Habitat home has three bedrooms and sells for an average of $80,000 to $100,000, regardless of whether it was built from the ground up or renovated.

“The biggest part is land,” said Habitat Chief Executive Officer
Jonathan Reckford.
“If we can’t get it donated, we have to buy land. And that becomes a big part of the cost.”

In response, Habitat is buying less land and building fewer homes in favor of buying existing homes, many of them foreclosures, to be renovated. The organization doesn’t have an estimate for how much cheaper the latter option is, given the many variables involved, but it does add that more homes have been donated to it in recent years for the renovation program.

Habitat’s struggle with land prices mirrors that of other home builders and highlights a factor inhibiting home construction. The recession and housing crisis brought residential land development to a halt in much of the U.S. It since has taken many years for land development to regain momentum, and it still has much to recapture. This year, the pace of construction of single-family homes hasn’t exceeded 68% of its annual average since 2000, Commerce Department data show.

Meanwhile, prices shot up for the few available home lots ready for construction in most markets. A quarterly survey of land developers conducted by housing-research firm Zelman & Associates found that home-lot prices started increasing at double-digit-percentage rates, on a year-to-year basis, in the third quarter of 2012.

Growth in lot prices peaked at 24% in 2013, according to Zelman. It since has cooled to a 13% gain in this year’s third quarter from a year earlier.

Land typically can represent no more than 20% to 25% of a home’s price in order for the builder to reap an acceptable return on the project, though the figure varies by market. If that portion of the cost is increasing at double-digit-percentage rates, it pushes up the home’s cost, often by a smaller amount, and squeezes the builder’s profit.

“Land prices have inflated so much that [builders] can’t get the return that they need to justify buying land at today’s prices to build an affordable housing product,” said Zelman CEO
Ivy Zelman.
Rising land prices are one of several reasons why many U.S. builders have limited their construction to larger, more expensive homes, which make it easier to cover rising land costs.

For Habitat for Humanity, the nonprofit group is doing fewer land deals, because high land prices make it challenging, if not impossible, to build affordable housing without incurring a loss.

Habitat, a Christian-based organization based in Atlanta, aims to provide housing to low-income families, and most of its construction is done with volunteer labor.

Buyers are required to help to build their home or others. They receive from Habitat no-interest mortgages for the cost to produce the house, with payments tailored not to exceed 30% of a family’s income.

Though founded and based in the U.S., Habitat does most of its work elsewhere. Its volunteers built 12,652 homes and renovated 4,832 existing homes outside the U.S. in its last fiscal year.

As prices for existing buildable lots rose, Habitat turned to the glut of foreclosed and vacant homes generated by the housing crisis. The number of completed foreclosures in the U.S. has receded from its recent peak in 2010 but still amounted to roughly 470,000 in this year’s first 10 months, more than twice the annual average from 2000 to 2004, according to CoreLogic Inc., a data and analytics firm.

Habitat also became a recipient of grants from the U.S. Department of Housing and Urban Development’s Neighborhood Stabilization Program, created in 2008 to help renovate vacant and abandoned homes. Habitat officials estimate the organization and its affiliates collected $300 million from the program, which it applied to shoring up vacant homes to be sold to families.

“If there are a lot of available, foreclosed homes in your communities, you probably want to work toward putting those back into service [rather] than on new construction,” said
Sue Henderson,
Habitat’s vice president for the U.S. and Canada.

Habitat for Humanity in the U.S. requires that homeowners receiving the organization’s assistance contribute labor of at least 16 hours for repairs and 200 hours or more for newly constructed homes. An earlier version of this article imprecisely said that buyers are required to spend several hours helping to build their home or others. (Dec. 22, 2014)